On every given Shard, you have two options for alliances: You can choose to ally yourself with a fellow Master, also to gain one of the non-human races as your friends. The two are not mutually exclusive.
Alliances with Master[]
If you ally yourself with a Master, you and he do not have to purge each other from the Shard you are currently on. Instead, you fight alongside until either of you gets beaten, or only the two of you are left. In that case, it will be decided by coin toss which one of you gets the Shard.
Alliances with demi-humans[]
Any of the demi-human races can be chosen as a partner on the current Shard. To do so, you have to enter a province of the given race and complete a quest:
- Elves: Free some Elves from a Mage Tower. Requires karma level at least The Merciful or Diplomacy skill at least 2 to begin quest.
- Dwarves: Recover an Axe from a Bandit Lair. Requires either positive Karma and a strong army or Diplomacy level 1(?) and 300 gold to begin quest. 100 gold will be requested upon quest completion, but you can refuse to pay with no penalty (the dwarves are trying to gouge you and will respect you if you stand up for yourself).
- Halflings: Kill 15 Brigands. No requirements to begin quest. 300 gold requested to complete quest upon return (refusing does not cancel alliance).
- Lizardmen: Kill 6 Slugs. No requirements to begin quest.
- Orcs: Acquire 150 gold by plundering your provinces. Requires negative Karma (-1 or lower) and a strong army to begin quest.
- Centaurs: Kill 5 Ogres. Requires a very strong army to complete the quest.
- Goblins: Kill 3 Elves. Requires negative Karma (-1 or lower) and a strong army to begin quest. You can also pay 1000-2000 gold (depending on the Hero's Diplomacy skill) in lieu of actually killing the elves.
For both the Elf and Dwarf quests, you must attack and defeat the correct dungeon to clear the quest, but the game checks to see if you attacked the correct dungeon after the guards have been defeated rather than when the quest is accepted, therefore it is possible to reload your end-of-turn autosave and fight the battle again until the quest reward is rolled successfully rather than scour the shard for Mage's Towers or Bandit Lairs.
For the Orc and Goblin quests (assuming you didn't just pay off the Goblins through Diplomacy), you must have a Karma of -1 or below to initiate them, but you can still complete the quests after meeting the conditions even if your Karma by then is 0 or higher. Note that completing the Orc (and also Goblin?) quest will lower Karma by 1. You'll still need negative Karma to peacefully annex further provinces though.
After completing the quest and returning to the province, you will gain the option to form a pact. Forming a demi-Human alliance gives two benefits: You may begin construction of Stronghold buildings in the Foreign Quarter for the race you allied with and recruit their basic unit in your stronghold; your heroes may peacefully annex all neutral provinces of the race, keeping their province guards in place. Only one demi-human race can be allied with per shard, and the alliance is not carried over to the next shard (unless it is the result of certain events in the Astral rather than quest completion on the current shard).